Generating a blended fx portfolio

ABSTRACT

Systems and methods for blending a plurality of FX forwards may include determining a signed sum of notional values associated with each of the primary currency component and the settlement currency component of each of the plurality of FX forwards for use in blending the plurality of FX forwards, each of the plurality of FX forwards having matching economics and a different associated fixed rate. A computing device may determine one or more remnant FX forwards to blend the plurality of FX forwards based, at least in part, using the determined sums of the notional values. This may reduce the gross notional and/or the total clearing line items associated with the original FX forwards. In some cases, the computing device may determine a single currency FX forward for blending the plurality of FX forwards.

REFERENCE TO RELATED APPLICATIONS

This application is a continuation under 37 C.F.R. § 1.53(b) of U.S.Pat. application Ser. No. 14/928,104 filed Oct. 30, 2015 (AttorneyDocket No. 004672-14493Z-US)) now U.S. Pat. No. ______, which claimspriority to U.S. provisional patent application Ser. No. 62/073,612,filed Oct. 31, 2014, the entire disclosures of which are herebyincorporated by reference and relied upon.

BACKGROUND

Over-the-counter (OTC) products include financial instruments that arebought, sold, traded, exchanged, and/or swapped between counterparties.Many OTC derivatives exist to fill a wide range of needs forcounterparties, including limiting or mitigating exposure to risksand/or maximizing cash flow. After an exchange of an OTC product,counterparties may expend resources managing the product for theduration of its life. Management may be complicated based on the numberof exchanges and/or the specific terms of the transaction.

The foreign exchange (FX) currency market is a global market allowingmarket participants to buy, sell, trade and otherwise speculate on forthe trading of currencies and may be considered to be one of thelargest, and most liquid, financial markets in the world. In some cases,an investor (e.g., an institutional investor, an individual investor)may desire to manage risk exposure associated with the FX market, suchas risk exposure associated with foreign exchange rates. These risks mayresult in uncertainty in managing cash flows, planning future businessexpansions and/or the like. On the FX currency market, currencies aretypically traded in pairs, such as a U.S. dollar/Japanese yen pair(USD/JPY) a Euro/U.S. dollar pair (EUR/USD), and the like. In somecases, FX forwards products may be referenced as currency pairs againstthe U.S. dollar, such as Euros vs. U.S. dollars (EUR/USD), U.S. dollarsvs. Japanese yen (USD/JPY), British pounds vs. U.S. dollars (GBP/USD),U.S. dollars vs. Swiss francs (USD/CHF), U.S. dollars vs. Canadiandollars (USD/CAD), Australian dollars vs. USD (AUD/USD), U.S. dollarsvs. Mexican pesos (USD/MXN), New Zealand dollars vs. USD (NZD/USD), U.S.dollars vs. Russian ruble (USD/RUB), U.S. dollars vs. South African rand(USD/ZAR), U.S. dollars vs. Brazilian real (USD/BRL), U.S. dollars vs.Chinese Renminbi (USD/RMB), U.S. dollars vs. Korean won (USD/KRW), andmany others.

In the OTC foreign exchange (FX) market place there are several productsthat are traded. Illustrative examples of these products may include OTCFX Cash Settled Forwards (CSF's), OTC FX Non Deliverable Forwards(NDF's), and the like. In CSF's, the associated currency paircorresponds to two currencies that are deliverable such as the EUR/USDcurrency pair. An exposure for the CSF is calculated in reference to asingle currency of choice and the value moves accordingly. In the NDFproducts, the associated currency pair includes one currency that isdeliverable whereas the other currency is non-deliverable such asUSD/BRL. Here, the exposure may be calculated and move in reference tothe deliverable currency. In the illustrative USD/BRL example, theexposure will move in USD.

When entering either of these trades an initial “Trade Price” is agreedupon by both participants and a value date at which the exposure will beexchanged. There are specific rules around how the exposure will becalculated using an agreed upon source for a “Fixing Price” on the“fixing date” and the difference between the Fixing Price and TradePrice. In some cases, the Trade Price and the Fixing Price may bereferenced in terms of an exchange rate between the two currencies, suchthat both the Trade Price and the Fixing Price may be calculated usingthe exchange rate on the trade date (e.g., a Trade Exchange Rate”) andthe termination date (e.g., a “Fixing Exchange Rate”), respectively. Asmarkets move, the Trade Price, and/or the Trade Exchange Rate, may bedifferent at different times for the same fixing date. If a counterpartyis facing a single counterparty such a central counterparty but hasvarious trades with identical terms but different Trade Price, then allthese trades will be open line items in their respective portfolios. Assuch, financial institutions, such as a financial exchange, a bank, aninvestment broker, etc. may face an increased need for data storageand/or computing capacity to manage one or more of these largeportfolios.

SUMMARY

Currently, financial institutions and other institutional investors suchas banks trade FX forwards over the counter (OTC). These FX forwardscorrespond to an agreement between parties to exchange currencies at apredetermined date in the future, with the purchase price locked in atan exchange rate available as of the trading date. Over time, the pricesof the FX forwards may vary as traders attempt to profit, or minimizerisk exposure, as exchange rates fluctuate. The term “FX forwards” mayinclude any of a variety of sub-products such as Non-DeliverableForwards, Deliverable Forwards, Cash Settled Forwards, and/or the like.Because the rate of a particular FX forward is determined based on theavailable exchange rate at the time the trade is struck, the fixed ratesassociated with two different FX forwards will rarely be the same. Assuch, each FX forward that is entered may cause a separate line item tobe booked until expiration or an opposite FX forward with the same fixedrate is struck. A financial institution managing a portfolio may have afirst data storage capacity large enough to store information associatedwith the portfolio comprising m FX forwards. As such, it would bedesirable to provide a way to blend FX forwards for reducing grossnotional amounts and/or line items (e.g., FX forwards) on a financialorganization's books, thus reducing a risk exposure of the financialorganization to currency movements.

Systems and methods for blending a plurality of FX forwards may includedetermining a signed sum of notional values associated with eachcomponent of the currency pair, such as the primary currency componentand the settlement currency component, of each of the plurality of FXforwards. These signed sums of the notional values may be used inblending the plurality of FX forwards, where each of the plurality of FXforwards having matching economics and a different associated fixedrate. A computing device may include a notional calculator to calculatethe sums of the notional values and a blending module (e.g., a portfoliocompression module) that may be configured to determine one or moreremnant FX forwards for use in blending the plurality of FX forwardsbased, at least in part, using the determined sums of the notionalvalues. This may reduce the gross notional and/or the total clearingline items associated with the original FX forwards. In some cases, theblending module may determine a single currency FX forward for blendingthe plurality of FX forwards.

A financial institution associated with a portfolio including theplurality of FX forwards may have one or more computing systems (e.g.,servers, data repositories, processors, etc.) that may be used, at leastin part, to store or otherwise manage portfolios of the financialinstitution's clients. These financial institution computing systems maybe sized to manage a specified amount of data associated with aspects ofthe financial institution's business. This may include managing and/orprocessing information associated with the portfolios. As portfoliosbecome larger for one or more of the financial institution's clients,the data storage capacity and/or processing power necessary to processand/or store this information may approach a storage capacity and/orprocessing power limit of the currently installed hardware. As such, thefinancial institution may be required to install more computing devicesand/or upgrade existing computing components to handle the additionalinformation storage and/or processing requirements. By monitoring, orotherwise managing the size of one or more portfolios, the financialinstitution may be able to proactively manage the computing requirementsand the associated costs. For example, the financial institution maymonitor a size of a client's portfolio. If the portfolio size approachesa threshold, the financial institution computing system mayautomatically initiate a portfolio compression process. In other cases,the financial institution computing system may provide an indication toan individual, such as a network manager, that the computing system isapproaching the limits to allow manual initiation of a portfoliocompression process. Alternatively, the computing system may store theportfolio in a compressed form for some or all clients so as to minimizethe data storage and processing requirements.

The details of these and other embodiments of the present invention areset forth in the accompanying drawings and the description below. Otherfeatures and advantages of the invention will be apparent from thedescription and drawings.

BRIEF DESCRIPTION OF THE DRAWINGS

The present invention may take physical form in certain parts and steps,embodiments of which will be described in detail in the followingdescription and illustrated in the accompanying drawings that form apart hereof, wherein:

FIG. 1 shows an illustrative trading network environment forimplementing trading systems and methods according to at least someembodiments;

FIG. 2 shows a portion of an illustrative system for blending notionalvalues associated with a plurality of FX forwards according to at leastsome embodiments;

FIG. 3-5 show a data tables illustrative of methods for blending an FXforward portfolio according to at least some embodiments; and

FIG. 6 shows an illustrative flow diagram for blending a plurality of FXforwards in a portfolio according to at least some embodiments.

DETAILED DESCRIPTION OF THE INVENTION

In some cases, clients may desire to enter into one or more FX forwardsin an OTC market to reduce risk associated with exposure to one or morecurrencies. For example, an organization may use FX forwards as ahedging tool that does not require any upfront payment from either partyto the transaction. For example, a business organization may sell goodsin a foreign market and may expect to receive the proceeds of the saleat some future date. Because the future sales may be subject to riskand/or other uncertainty based on the fluctuating exchange rates, thebusiness organization may decide to enter one or more FX forwardstransactions to hedge the risk associated with the fluctuating currencymarkets and/or the uncertainty associated with an expected profit due tothe predicted exchange rate at the future date. For example, thebusiness organization may sell product in a foreign market over aspecified timeframe but, for a variety of reasons, the businessorganization may not receive the proceeds of the sale until some futuredate after the timeframe of the sale. For example, the businessorganization may sell product during the first quarter of the year, butnot receive the proceeds of the sale(s) until a future date, such as adate in the fourth quarter of the year. Due to the fluctuations in thecurrency market, the organization may desire to hedge any potential lostprofit due to an unfavorable exchange rate in the future. By hedgingthese risks, the parties to the FX forwards may have a goal to allowtheir assets and/or liabilities to at least remain near the startinglevels and/or minimize any losses.

Generally, the currently available exchange rate dictates the costsassociated with exchanging currencies in a currency pair, where theavailable exchange rate in the FX market over time. For example, acurrency exchange rate for a currency pair (e.g., EUR/USD) may be quotedat a first rate at a time 0. A short time later (e.g., about 10 minutes,about 30 minutes, etc.), another currency exchange rate quote may beprovided for the same currency pair, where all other terms remain thesame but having a second exchange rate that is different than the firstrate. Once the FX forwards are entered, the exchange rate will remainfixed for the lifetime of the FX forward. Over time, a FX forwardpurchaser (e.g., an individual, an organization, a business, etc.) maydevelop a portfolio of FX forwards, including Non-Deliverable Forwards,Deliverable Forwards, Cash Settled Forwards, and/or the like. Few, ifany, FX forwards may have the same exchange rate resulting in a largenumber of FX forwards to remain open on the organization's books.

An organization or an individual may enter into multiple FX forwardsduring a given time frame (e.g., a day, a week, a month, etc.) and, as aresult, may have multiple line items in their books in relation to theseFX forwards. For example, a customer may have a first FX forward forexchanging a set amount (e.g., $100 million) of a first currency for anamount of a second currency, as defined by the Fixing Price (or FixingExchange Rate) and a second FX forward for exchanging an amount of thesecond currency for the same set amount (e.g., $100 million) of the samecurrency. Although these FX forwards are associated with the samenotional amount of the first currency, the associated exchange rates arelikely to be different. As such, these FX forwards will not net out.Rather, the $200 million in gross notional remains open on theorganization's books. These FX forwards may further be subject toregulatory requirements, such as governmental requirements,international banking requirements (e.g., BASEL 3 requirements), and/orthe like. These regulatory requirements may, in turn, subject theorganization to capital charges (e.g., a specified cash reserve) toensure that a financial organization has enough cash to cover theirliabilities regarding their FX forwards portfolio.

In an illustrative example, a financial institution may have a houseaccount having a number of FX forwards open in the account. Under theregulatory requirements, the financial institution is required to setaside capital (e.g., a margin account) to cover the open FX forwards.This cash requirement may be dependent upon, at least in part, on thegross notional amount and/or the total clearing line items associatedwith the FX forwards portfolio. As such, the financial organization canreduce its capital requirements by reducing the number of line items ontheir books, and/or by reducing the gross notional of the FX forwardsportfolio.

In some cases, multiple line items having the same exchange rate orfixing price may be collapsed together (e.g., canceled). For example, asold/short FX forward having an associated first notional amount of maybe offset by a second notional amount associated with a buy/long FXforward when the short and long FX forwards have the same fixing priceor exchange rate. However this is rare. For example, a FX forwardparticipant may use an investment strategy for achieving the sameexchange rate for two or more different FX forwards. In such cases, thecustomer may specify a desired exchange rate for a FX forward whencontacting a dealer. While the dealer may be able to find acounter-party willing enter into an FX forward at that rate, the FXforward may incur a fee to equalize the economics of the FX forward. Forexample, at the desired exchange rate, the economics of the FX forwardmay favor the short party or the long party. By equalizing thesedifferences, the FX forward may then be structured to allow the totalvalue of the first currency leg to be equal to the second currency legof the FX forward. In general, when the exchange rates are determinedfor the FX forwards, the precision may be specified by one or moreparties to the FX forwards. In some cases, the precision of the ratesmay be limited to a defined precision common to the market, such as 2decimal places, 5 decimal places, up to 7 decimal places or other suchprecision. In other cases, the rate precision may be specified to be aprecision greater than 7 decimal places, such as 11 decimal places, upto 16 decimal places, etc.)

In some cases, a clearing house may monitor a portfolio of FX forwardsto determine whether any of the total notional value of the FX forwardsportfolio may be “torn up” or otherwise offset. For example, theclearing house may, on a periodic (e.g., daily) basis, process analgorithm to determine a net value of a client's FX forwards portfolioand send a message to the client to terminate a line item, or offset atleast a portion of the gross notional value when two or more line itemsmay be collapsed.

Exemplary Operating Environment

Aspects of at least some embodiments can be implemented with computersystems and computer networks that allow users to communicate tradinginformation. An exemplary trading network environment for implementingtrading systems and methods according to at least some embodiments isshown in FIG. 1. The implemented trading systems and methods can includesystems and methods, such as are described herein, that facilitatetrading and other activities associated with financial products based oncurrency pairs.

Computer system 100 can be operated by a financial product exchange andconfigured to perform operations of the exchange for, e.g., trading andotherwise processing various financial products. Financial productstraded or otherwise processed by the exchange may includeover-the-counter (OTC) products such as OTC forwards, OTC options, etc.Financial products of the exchange may also include, without limitation,futures contracts, options on futures contracts (“futures contractoptions”), and other types of derivative contracts.

Computer system 100 receives orders for financial products, matchesorders to execute trades, transmits market data related to orders andtrades to users, and performs other operations associated with afinancial product exchange. Exchange computer system 100 may beimplemented with one or more mainframe, desktop or other computers. Inone embodiment, a computer device uses one or more 64-bit processors. Auser database 102 includes information identifying traders and otherusers of exchange computer system 100. Data may include user names andpasswords. An account data module 104 may process account informationthat may be used during trades. A match engine module 106 is included tomatch prices and other parameters of bid and offer orders. Match enginemodule 106 may be implemented with software that executes one or morealgorithms for matching bids and offers.

A trade database 108 may be included to store information identifyingtrades and descriptions of trades. In particular, a trade database maystore information identifying the time that a trade took place and aprice associated with the trade (e.g., a bid price, an ask price, etc.).An order book module 110 may be included to store prices and other datafor bid and offer orders, and/or to compute (or otherwise determine)current bid and offer prices. A market data module 112 may be includedto collect market data, e.g., data regarding current bids and offers forOTC FX forwards, futures contracts, futures contract options and otherOTC or derivative products. Module 112 may also prepare the collectedmarket data for transmission to users. A risk management module 134 maybe included to compute and determine a user's risk utilization inrelation to the user's defined risk thresholds. An order processormodule 136 may be included to decompose delta based and bulk order typesfor further processing by order book module 110 and match engine module106.

A clearinghouse module 140 may be included as part of exchange computersystem 100 and configured to carry out clearinghouse operations. Module140 may receive data from and/or transmit data to trade database 108and/or other modules of computer system 100 regarding trades of OTC FXforwards, futures contracts, futures contracts options, OTC options andcontracts, and other financial products. Clearinghouse module 140 mayfacilitate the financial product exchange acting as one of the partiesto every traded contract or other product. For example, computer system100 may match an offer by party A to sell a financial product with a bidby party B to purchase a like financial product. Module 140 may thencreate a financial product between party A and the exchange and anoffsetting second financial product between the exchange and party B. Asanother example, module 140 may maintain margin data with regard toclearing members and/or trading customers. As part of suchmargin-related operations, module 140 may store and maintain dataregarding the values of various contracts and other instruments,determine mark-to-market and final settlement amounts, confirm receiptand/or payment of amounts due from margin accounts, confirm satisfactionof final settlement obligations (physical or cash), etc. As discussed infurther detail below, module 140 may determine values for performancebonds associated with trading in products based on various types ofcurrency pairs.

Each of modules 102 through 140 could be separate software componentsexecuting within a single computer, separate hardware components (e.g.,dedicated hardware devices) in a single computer, separate computers ina networked computer system, or any combination thereof (e.g., differentcomputers in a networked system may execute software modulescorresponding more than one of modules 102-140).

Computer device 114 is shown directly connected to exchange computersystem 100. Exchange computer system 100 and computer device 114 may beconnected via a T1 line, a common local area network (LAN) or othermechanism for connecting computer devices. Computer device 114 is shownconnected to a radio 132. The user of radio 132 may be a trader orexchange employee. The radio user may transmit orders or otherinformation to a user of computer device 114. The user of computerdevice 114 may then transmit the trade or other information to exchangecomputer system 100.

Computer devices 116 and 118 are coupled to a LAN 124. LAN 124 mayimplement one or more of the well-known LAN topologies and may use avariety of different protocols, such as Ethernet. Computers 116 and 118may communicate with each other and other computers and devicesconnected to LAN 124. Computers and other devices may be connected toLAN 124 via twisted pair wires, coaxial cable, fiber optics, radio linksor other media.

A wireless personal digital assistant device (PDA) 122 may communicatewith LAN 124 or the Internet 126 via radio waves. PDA 122 may alsocommunicate with exchange computer system 100 via a conventionalwireless hub 128. As used herein, a PDA includes mobile telephones andother wireless devices that communicate with a network via radio waves.

FIG. 1 also shows LAN 124 connected to the Internet 126. LAN 124 mayinclude a router to connect LAN 124 to the Internet 126. Computer device120 is shown connected directly to the Internet 126. The connection maybe via a modem, DSL line, satellite dish or any other device forconnecting a computer device to the Internet. Computers 116, 118 and 120may communicate with each other via the Internet 126 and/or LAN 124.

One or more market makers 130 may maintain a market by providingconstant bid and offer prices for a derivative or security to exchangecomputer system 100. Exchange computer system 100 may also include tradeengine 138. Trade engine 138 may, e.g., receive incoming communicationsfrom various channel partners and route those communications to one ormore other modules of exchange computer system 100.

One skilled in the art will appreciate that numerous additionalcomputers and systems may be coupled to exchange computer system 100.Such computers and systems may include, without limitation, additionalclearing systems (e.g., computer systems of clearing member firms),regulatory systems and fee systems.

The operations of computer devices and systems shown in FIG. 1 may becontrolled by computer-executable instructions stored on non-transitorycomputer-readable media. For example, computer device 116 may includecomputer-executable instructions for receiving market data from exchangecomputer system 100 and displaying that information to a user. Asanother example, clearinghouse module 140 and/or other modules ofexchange computer system 100 may include computer-executableinstructions for performing operations associated with determiningperformance bond contributions associated with holdings in products thatare based on various types of currency pairs.

Of course, numerous additional servers, computers, handheld devices,personal digital assistants, telephones and other devices may also beconnected to exchange computer system 100. Moreover, one skilled in theart will appreciate that the topology shown in FIG. 1 is merely anexample and that the components shown in FIG. 1 may be connected bynumerous alternative topologies.

Illustrative Embodiments

In some cases, the clearinghouse module 140 may be configured to monitorand/or otherwise manage a capital obligation associated with a pluralityof FX forwards, such as an FX forwards portfolio. In at least someembodiments, the exchange computer system 100 (or “system 100”)receives, stores, generates and/or otherwise and processes data. Inaccordance with various aspects of the invention, a clearinghouse (e.g.,the clearinghouse module 140) may act as a guarantor of the agreementfor the derivative. As discussed above, a financial product (e.g., anOTC FX forwards) may be cleared and guaranteed by the clearinghouse.This may promise more interesting capital efficiencies to allowinstitutions to reduce a capital charge associated with a plurality ofFX forwards, such as by reducing a gross notional and/or reducing lineitems associated with the plurality of FX forwards.

FIG. 2 shows a portion of an illustrative system 200 for blending aplurality of FX forwards according to at least some embodiments. In somecases, the illustrative system 200 may include a financial institutioncomputing system 210 communicatively coupled to a clearinghouse computersystem 240 via a network 205 (e.g., a wide area network (WAN), the LAN124, the Internet 126, etc.). The financial institution computing system210 may include a data repository 212, one or more computing devices214, and, in some cases, at least one user interface 216. In some cases,the data repository 212 may store information about one or moreportfolios 222 including a plurality of FX forwards, where theportfolios 222 may include information about two or more different FXforwards (e.g., trade 1, trade 2, trade n, etc.). For example, the FXforward information may include a currency pair, an exchange rate value,a notional amount, and/or a buy or sell position associated with eachcurrency of the currency pair for each of the plurality of different FXforwards portfolios 222. In some cases, the portfolios 222 may beassociated with the financial institution, and/or one or more differentcustomers of the financial institution. For example, a financial entityand/or a customer of the financial entity may desire to enter into oneor more different FX forwards to hedge financial risk due to an exchangerate associated with a currency. In some cases, a computing device 215and/or the user interface 216 may be used to facilitate user access tothe one or more of the portfolios 222. For example, a user may log intothe financial institution computing system 210 via one or more userinterface screens accessible via the user interface 216. In some cases,the user interface 216 is at a geographical location local to thefinancial institution computer system 210 and/or at a geographicallocation of the user.

In some cases, the clearinghouse computer system 240 may include one ormore of a data repository 242, a computer device 244 and/or a userinterface 246. The clearinghouse computer system 240 may becommunicatively coupled to at least one financial institution computersystem, such as the financial institution computing system 210 via thenetwork 205. In some cases, the clearinghouse computer system 240 may beconfigured to obtain information about one or more of the portfolios222, process the information to blend notional amounts associated withthe different FX forwards held in the portfolios 222 and communicateinformation about the blended FX forwards to the financial institutioncomputing system 210 to reduce one or more line items associated withthe portfolios 222 and/or to reduce a gross notional value associatedwith the portfolios 222 to reduce a total capital charge incurred by thefinancial institution in relation to the portfolios 222.

FIG. 3 illustrates a data table 800 illustrative of a method forblending notional amounts associated with FX forwards a portfolio by theclearinghouse computing system 240 according to certain embodiments. Thedata table 800 includes information about a plurality of FX forwards 810(e.g., one or more of the portfolios 222) held at the financialinstitution, an associated currency pair 811 (e.g., USD/BRL, EUR/USD,USD/RMB, etc.), an exchange rate 812, and a notional amount 821associated with a first currency of the currency pair (e.g., USD, etc.).In some cases, the table 800 may include a signed notional amount 823representative of a buy (e.g., a positive value) or a sell (e.g., anegative value) position. In some cases, the table 800 may include asigned weighted US notional value 824. The table 800 may also includeinformation about the contra currency (e.g., BRL, etc.) of the currencypair 811, such as a notional amount 831 and a signed notional amount 833corresponding to a long or a short position taken in each of thecurrencies of the currency pair. The notional amount 831 of the contracurrency may be determined as a function of the rate 812 and thenotional amount 821 of the base currency, where the rate 812 correspondsto an exchange rate between the base currency and the contra currency.

In blending the FX forwards 810 of the portfolio, the notional amount821 of the first currency may be summed to determine a total notionalamount 840 associated with the first currency. Similarly, the signednotional amount 823 associated with the base currency may be summed todetermine a total net position 853 in the base currency and the signednotional amount 833 associated with the contra currency may be summed todetermine a total net position 863 in the contra currency of thecurrency pair. In some cases, the total net position 863 of the contracurrency may net out to zero. In such cases, the FX forward portfoliomay be compressed using a “full netting” mechanism.

In an illustrative example, the full netting mechanism may be used whenthe long positions (e.g., the buys) and the short positions (e.g., thesells) on the same FX forward/value date combination and the notionalamounts of buys and sells for the base currency or contra net out tozero. The rates associated with the FX forwards may be the same, butthat is not required as the full netting mechanism can operate when therates are different within all the FX forwards 811 held in theportfolio. Because the notional amounts associated with the contracurrency net to zero, a residual amount (e.g., the sum 853) in the basecurrency remains to be settled. To represent this residual cash flow(e.g., the residual amount 873) associated with the base currency, theexisting FX forwards 810 may be removed from the portfolio and a newsingle currency FX forward 870 (e.g., USD/USD) associated with the basecurrency may be booked corresponding to the residual amount 873 in thecurrency that settles as a residual amount for the same value date.While the single currency FX forward may represent a cash payment, oneor more computing systems associated with the lifecycle of an FX forwardmay not be able to process the cash payment. For example, a financialinstitution may utilize a front end system for order entry of one ormore FX forwards products, a risk management system for determiningmargining requirements associated with portfolios of the FX forwardsproducts, and a settlement computing system for settling open FXforwards products, such as upon value date. In many cases, the orderentry computing system on the front end may not be capable of bookingcash transactions (e.g., a cash payment) without modifications of thefront end system itself. However, the front end system (e.g. order entrysystem) may be easily modified to accept an FX forward comprising acurrency pair of the same currency (e.g., USD/USD). As such, the remnantamount of the remnant trade may be entered as a single currency FXforward 870 at the front end and may correspond to a currency pair ofthe same currency (e.g., USD/USD) and having an exchange rate 872 of 1.This remnant trade represented by the single currency FX forward 870 maystill represent a cash settlement value, but does not require amodification of the existing systems and may be processed the same, orat least similarly, to other FX forwards by the front end computingsystems, the risk management computing systems and/or the settlementcomputing systems.

In many cases, the single currency FX forward 870 may include a samesettlement date as the FX forwards 810 of the original portfolio. Assuch, a user interface may be used to allow a bank, or other financialentity, to provide for early settlement of this remnant cash value. Forexample, a user may desire to close out the remaining liability to thecompressed portfolio. In such cases, a settlement order may be enteredto settle the single currency FX forward 870 before the definedsettlement date for the cash value, often in return for a fee (e.g.,fixed fee, a percentage fee, etc.) of the nominal value. In theillustrative example, the single currency, a financial organization mayoffer to settle a single currency FX forward 870 has a notional value873 of $572,943.68 and may have an associated settlement date (e.g.,value date) of the original FX forward. In some cases, the owner of theportfolio may desire to close out the remainder of the portfolio beforethe settlement date. Because the single currency FX forward has anexchange rate of 1, the market value may largely correspond a durationuntil the settlement date was reached. As such, the user interface maybe used to offer the portfolio owner one or more early settlementoptions, such as by using a fixed fee, a fee determined as a percentageof the notional value, a fee as a function of time (eg. NPV), and/or thelike. In return for the fee, the portfolio owner can close out anyremaining liability to the original FX forwards 810.

In many cases, the notional values associated with either of thecurrencies in the portfolio may not net out to zero, so that the fullnetting option is not applicable. In such cases, one or more “partialnetting” mechanisms may be used to blend or otherwise compressportfolios of FX forwards. FIGS. 4 and 5 illustrate data tables 900,1000 illustrative of methods for blending notional amounts associatedwith FX forwards in a portfolio by the clearinghouse computing system240 according to certain embodiments.

As discussed above, the data tables 900, 1000 includes information abouta plurality of FX forwards 910, 1010 (e.g., one or more of theportfolios 222) held at the financial institution, an associatedcurrency pair 911, 1011 (e.g., USD/BRL, USD/Euro, USD/RMB, etc.),exchange rates 912, 1012, and notional amounts 921, 1021 associated witha base currency of the currency pair (e.g., USD, etc.). In some cases,the tables 900, 1000 may include a signed notional amount 923, 1023representative of a buy (e.g., a positive value) or a sell (e.g., anegative value) position. In some cases, the tables 900, 1000 mayinclude a signed weighted US notional value 924, 1024. The tables 900,1000 may also include information about the contra currency (e.g., BRL,etc.) of the currency pair 911, 1011, such as a notional amount 931,1031 and a signed notional amount 933, 1033 corresponding to a long or ashort position taken in each of the currencies of the currency pair. Thenotional amount 931, 1031 of the contra currency may be determined as afunction of the rate 912, 1012 and the notional amount 921, 1021 of thebase currency, where the rate 912, 1012 corresponds to an exchange ratebetween the base currency and the contra currency.

In some cases, a compression computing module (not shown) may beconfigured to calculate a sum of the absolute notional values of thebase currency 921 associated with each of the FX forwards 910 held inthe portfolio and calculate a sum of the signed and weighted notionalvalues 923 and 933. The compression computing module may then determinewhether to use one of a plurality of different partial nettingmethodologies. For example, Table 900 of FIG. 4 illustrates a partialnetting methodology resulting in two remnant FX forwards associated withthe same currency pair and settlement date of the original FX forwards910. This methodology may be based, at least in part, on a maximum ratevalue 972 that may be associated with a first remnant FX forward 970 anda minimum rate value 982, less than the maximum rate value 972, whichmay be associated with a second remnant FX forward 980. In some cases,the maximum rate value 972 may be determined in a number of ways, suchas by determining a maximum fixed rate 355 associated with theportfolio, determining an average of the rates associated with the FXforwards 910, receiving a user selected rate, multiplying a rate by amultiplier (e.g., a user selected multiplier), determining a currentmarket rate, determining a past market rate, by adding or subtractingbasis points from a selected rate, and/or the like. Similarly, theminimum rate value 982 may be determined in a number of ways, such as bydetermining a minimum rate associated with the FX forwards 910,determining an average of the rates associated with the FX forwards 910,receiving a user selected rate, multiplying a rate by a multiplier(e.g., a user selected multiplier), determining a current market rate,determining a past market rate, adding or subtracting basis points froma selected rate and/or the like.

Once the maximum rate 972 and the minimum rate 982 are determined, thenotional amount associated with each currency for each remnant FXforward 970, 980 may be determined. For example, the notional amount 971associated with the first remnant FX forward 970 may be determined basedon the selected rates. For example, the notional amount 971 (e.g.,Notional_(primary)) associated with the first remnant FX forward 970 maybe determined using the formula:

Notional_(primary)=(Weighted Average Notional−(NetNotional*Rate_(min)))/(R _(max) −R _(min))

Similarly, the notional amount 981 (e.g., Notionalsettiement) associatedwith the second FX forward 970 may be determined using the formula:

Notional_(settlement)=−(Net Notional−Notional_(primary))

In the illustrative example, the notional amounts 971 and 981 may beassociated with the base currency (e.g., USD) of the currency pair andthe notional amounts 973 and 983 may be associated with the contracurrency (e.g., BRL). Once determined, the notional amount 971 and themaximum rate 972 may be used to calculate the notional amount 973 of thefirst remnant FX forward 970 using the formula:

Notional₂=(Notional₁*Rate_(max))

Similarly, the notional amount 981 and the minimum rate 982 may be usedto calculate the notional amount 983 of the second remnant FX forward980 using the formula:

Notional=−(Notiona1 ₂* Rate_(min))

Once determined, a portfolio compression module may be configured toclose out the FX forwards 910 of the original portfolio and generate,such as via an order entry system, the first remnant FX forward 970 andthe second remnant FX forward 980 to be held in the portfolio. Whencomplete, the compressed portfolio comprising the first and secondremnant FX forwards 970, 980 may have a same net notional associatedwith each of the base currency (e.g., USD) and the contra currency(e.g., BRL) as the original FX forwards 910. However the gross notionalassociated with each currency has been reduced.

Table 1000 illustrates a different netting methodology that may compressthe original FX forwards 1010 into a first remnant FX forward 1070(e.g., USD/BRL) for settling the risk exposure to a currency (e.g., BRL)of the currency pair and a remnant single currency FX forward (e.g.,USD/USD) to settle the remaining exposure to the second currency (e.g.,USD) of the currency pair. In some cases, the rate 1072 associated withthe first remnant FX forward may be determined using a maximum fixedrate 1055 associated with the portfolio, a minimum fixed rate 1050associated with the portfolio, the rounded average rate of the FXforwards 1010, a user selected rate, a current market rate, a pastmarket rate, etc.

Using the residual partial netting methodology, the portfoliocompression module (not shown) may create a first remnant FX forward1070 based on the rate 1072 that may be determined as a maximum rateassociated with the portfolio, the Max rate plus or minus one or morebasis points, a user defined value, a current exchange rate, and/or thelike. Once the rate 1072 has been determined, the notional amount 1073associated with the primary currency (e.g., BRL) may be set equal to thenet notional 1063 corresponding to the net exposure to the primarycurrency in the original portfolio. Next, the notional amount 1071associated with the settlement currency (e.g., USD) may be determinedusing the notional amount 1073 and the rate 1072 using the formula:

Notional_(settlement)=−(Notional_(primary))/R _(max)

The residual amount 1081 of the settlement currency may be determined byusing the Net amount of the settlement currency, such as by using theformula:

Residual_(settlement)=(Σ(signedNotional)_(settlement))−Notional_(settlement)

As can be seen, this residual amount 1081 corresponds to the differencebetween the total signed notional amount 1053 and the notional amount1071 associated with the settlement currency of the first remnant FXforward 1070. This residual amount 1081 may be booked as a singlecurrency FX forward 1080 (e.g., a USD/USD trade) with a rate of 1 forthe same value dates associated with the original portfolio.

FIG. 6 shows an illustrative flow diagram for blending a plurality of FXforwards in a portfolio according to at least some embodiments. At 610,a portfolio compression module may receive information corresponding toa portfolio of FX forwards. For example, the portfolio compressionmodule may be included in the exchange computing system 100 and/or theclearinghouse computing system 240. The portfolio compression module maybe communicatively coupled to the financial institution computing system210 and receive the information about the portfolio 222 containing aplurality of FX forwards via the network 205. At 1120, the portfoliocompression module may calculate a signed weighted notional valueassociated with each of the FX forwards included in the portfolio 222.For example, the portfolio compression module may calculate a signednotional value for each FX forward of the portfolio by multiplying thenotional value by 1 for a buy transaction and by multiplying thenotional value by a (−1) for a sell transaction. The signed, weightednotional value may be calculated by multiplying the signed notional bythe rate associated with each FX forward.

At 1130, the portfolio compression module may calculate a sum of thesigned and/or signed and weighted notional values associated with eachof the FX forwards associated with the portfolio 222. For example, a sumof the signed notional values associated with the primary currency(e.g., Euro, GBP, etc.), a sum of the signed notional values associatedwith the settlement currency (e.g., USD), and/or a sum of the signed andweighted notional values associated with the settlement currency (e.g.,USD) may be calculated by the portfolio compression module.

Once calculated, the portfolio compression module may use one or more ofa minimum exchange rate, a maximum exchange rate, the sum of the signednotional values and/or the sum of the signed and weighted notionalvalues to determine a portfolio compression method (e.g., the fullcompression method of Table 800, the min/max partial compression methodof Table 900, the residual partial compression method of Table 1000,etc.) for use in compressing the portfolio 222. For example, theportfolio compression module may at 1135 determine whether a currencyhas netted out. For example, the portfolio compression module maydetermine whether a sum of the signed notional values is equal to 0. Insuch cases, the full compression method may be used at 1140 to compressthe portfolio as no remnant trades would be created upon compression. Inother words, the FX forwards will net to zero. If not, a partialcompression method may be used.

At 1145, the portfolio compression module may determine which partialcompression method to use. In some cases, the portfolio compressionmodule may determine to use a partial compression method based upon oneor more rules, such as a rule to improve the processing power of acomputing device or a rule to reduce the use of a storage medium by aspecified percentage. For example, the portfolio compression module maybe configured to use a first compression method (e.g., the min/max ratecompression method) when the minimum and the maximum rates are within aspecified range. In other cases, the portfolio compression module maydetermine to use a second compression method (e.g., the remainderpartial compression method) under specified conditions, such as when thedifference between the minimum and maximum rates is greater than athreshold. In some cases, the portfolio compression module may becommunicatively coupled to a user interface device that may allow a userto specify a compression method and/or to override a compression methoddetermination.

If the min/max compression method has been selected (e.g., by a user, bythe portfolio compression module, etc.) at 1155, then at 1150 theportfolio compression module may determine the first remnant FX forwardassociated with the determined maximum rate and determine the secondremnant FX forward associated with the determined minimum rate, asdiscussed above in reference to table 900. If at 1155, the portfoliocompression module may determine a first remnant FX forward associatedwith the determined maximum rate and a second remnant FX forwardassociated with the settlement currency of the currency pair associatedwith the FX forwards, as discussed above in reference to table 1000.

Once the portfolio compression module determines the blended remnant FXforwards at 1140, 1150, or 1160, the portfolio compression module maythen trigger a settlement module to close the existing FX forwards ofthe portfolio 222, enter the generated remnant FX forwards into thefront end system and assign them to the appropriate portfolio 222 orgenerate via the front end order entry system a new portfolio comprisingthe blended FX forwards.

The present invention has been described herein with reference tospecific exemplary embodiments thereof. It will be apparent to thoseskilled in the art that a person understanding this invention mayconceive of changes or other embodiments or variations, which utilizethe principles of this invention without departing from the broaderspirit and scope of the invention as set forth in the appended claims.

1. A method comprising: reducing, by a portfolio compression module of aclearinghouse computing system, an amount of data required by a datarepository of a financial institution computing system that stores adata structure corresponding to a portfolio of a plurality of financialinstruments, each characterized by a notional value and comprising anobligation to exchange a first asset for a second asset at a later dateas a function of an associated then current conversion value between thefirst and second assets when the obligation was entered into, theconversion value subsequently varying thereafter, the then currentconversion value associated with one of the plurality of financialinstruments being different from the then current conversion valueassociated with at least one other of the plurality of financialinstruments, wherein the reducing of the amount of data furthercomprises: accessing, via a network by the clearinghouse computingsystem, the data repository of the financial institution computingsystem; determining, a first remnant financial instrument using a firstconversion value and a first notional value, wherein the firstconversion value is one of a maximum of the associated then currentconversion values of the plurality of financial instruments, an averageof the associated then current conversion values of the plurality offinancial instruments, a user selected conversion value, a multiple of aconversion value, a current conversion value, a prior conversion valueor an adjustment thereto, the first notional value being calculatedusing a weighted average notional value, a net notional value multipliedby a second conversion value, and a difference between the firstconversion value and the second conversion value; determining a secondremnant financial instrument using the second conversion value and asecond notional value calculated as a difference between a totalnotional value of the portfolio and the first notional value, whereinthe second conversion value comprises a one of a minimum conversionvalue of the associated then current conversion values of the pluralityof financial instruments, an average of the associated then currentconversion values of the plurality of financial instruments, a userselected conversion value, a current conversion value, a priorconversion value or an adjustment thereto; and generating, by theclearinghouse computing system, a compressed data structure comprising afirst data element storing the first remnant financial instrument and asecond data element storing the second remnant financial instrument; andreplacing, by a front-end order entry computer system of the financialinstitution computing system, in the data repository of the financialinstitution computing system, the first data structure with thecompressed data structure, wherein the compressed data structure ischaracterized by a smaller data size and a same net notional value but areduced gross notional value as compared with the first data structure.2. The method of claim 1, wherein each of the plurality of financialinstruments comprises a foreign exchange (FX) Forward, the then currentconversion value comprising a then current exchange rate betweencurrencies underlying the FX forward.
 3. The method of claim 1, whereindetermining at least the first conversion value comprises: determiningthe first conversion value and the second conversion value, wherein thefirst conversion value is greater than the second conversion value. 4.The method of claim 1, wherein determining at least the first conversionvalue comprises: determining the first conversion value and the secondconversion value so that a gross notional amount associated with a firstfinancial instrument of the portfolio and a second financial instrumentof the portfolio is minimized.
 5. The method of claim 1, whereindetermining at least the first conversion value comprises: determiningat least one of the first conversion value and the second conversionvalue based on a current market exchange conversion value associatedwith a currency pair corresponding to each of a plurality of financialinstruments of the portfolio stored in the first data structure.
 6. Themethod of claim 1, further comprising: determining a signed notionalvalue associated with each of the plurality of financial instruments ofthe portfolio, wherein the signed notional value for a particularfinancial instrument of the portfolio is determined based on a buy or asell order or a conversion value associated with the particularfinancial instrument of the portfolio and a notional value associatedwith the particular financial instrument of the portfolio.
 7. The methodof claim 6, further comprising: determining a notional value associatedwith the first remnant financial instrument of the portfolio using atleast the first conversion value and a sum of signed notional valuesthat are associated with each of the plurality of financial instrumentsof the portfolio.
 8. The method of claim 7, wherein determining thefirst remnant financial instrument of the portfolio comprises:determining the first remnant financial instrument of the portfoliobased on the first conversion value and the second conversion value. 9.The method of claim 1, wherein the second remnant financial instrumentof the portfolio comprises a single currency financial instrument of theportfolio.
 10. The method of claim 1, further comprising: comparing, bythe clearinghouse computing system, to a threshold, a count of dataelements of a first data structure of the plurality of data structures,wherein each data element corresponds to a different financialinstrument of the portfolio held in the portfolio; when the threshold ismet, compressing, by the clearinghouse computing system, the first datastructure based on data stored in each of the plurality of data elementsof the first data structure by:
 11. The method of claim 1, comprising:determining a total notional amount associated with a plurality offinancial instruments of the portfolio having same economics; comparingthe total notional amount to a criterion; and blending, responsive tothe total notional amount meeting the criterion, at least a portion ofthe plurality of financial instruments of the portfolio using the firstremnant financial instrument of the portfolio and the second remnantfinancial instrument of the portfolio.
 12. The method of claim 1,wherein the plurality of financial instruments of the portfolio isassociated with a particular client of a financial institution.
 13. Themethod of claim 1, comprising: blending at least a portion of theplurality of financial instruments of the portfolio using the firstremnant financial instrument of the portfolio and the second remnantfinancial instrument of the portfolio on a daily basis; andcommunicating, via a network, information corresponding to the firstremnant financial instrument of the portfolio and the second remnantfinancial instrument of the portfolio to a financial institutionassociated with the plurality of financial instruments of the portfolio.14. The method of claim 13, comprising: communicating, via the network,information corresponding to at least a blended portion of the pluralityof the financial instruments of the portfolio to the financialinstitution; and generating the first remnant financial instrument ofthe portfolio and the second remnant financial instrument of theportfolio using the front-end order entry computing system of thefinancial institution computing system.
 15. A non-transitorycomputer-readable medium containing computer-executable instructions,that when executed by a processor, cause one or more computing devicesto: reduce an amount of data required by a data repository of afinancial institution computing system that stores a plurality of datastructures, wherein each of the plurality of data structures correspondsto a portfolio of a plurality of financial instruments, eachcharacterized by a notional value and comprising an obligation toexchange a first asset for a second asset at a later date as a functionof an associated then current conversion value between the first andsecond assets when the obligation was entered into, the conversion valuesubsequently varying thereafter, the then current conversion valueassociated with one of the plurality of financial instruments beingdifferent from the then current conversion value associated with atleast one other of the plurality of financial instruments, wherein thecomputer-executable instructions are further executable by the processorto cause the one or more computing devices to: access, via a network bya clearinghouse computing system, the data repository of the financialinstitution computing system; determine a signed notional valueassociated with each asset of the first and second assets correspondingto each of a plurality of financial instruments stored in the first datastructure, each of the plurality of financial instruments comprising adifferent data element of the first data structure and having matchingeconomics and a different associated conversion value; determine, that asum of the signed notional values associated with a primary asset of thefirst and second assets of each of the plurality of financialinstruments equals zero; generate, based on the determination that thesum of the signed notional values associated with the primary assetequals zero, a first remnant financial instrument corresponding to aremainder cash value associated with a settlement currency of theplurality of financial instruments, and generate, a compressed datastructure comprising the first remnant financial instrument as its dataelement; and replace, by a front-end order entry computer system of thefinancial institution computing system, in the data repository of thefinancial institution computing system, the first data structure withthe compressed data structure, wherein the compressed data structure ischaracterized by a smaller data size and a same net notional value but areduced gross notional value as compared with the first data structure.16. The non-transitory computer-readable medium of claim 15, wherein thefirst remnant financial instrument is a single asset financialinstrument.
 17. The non-transitory computer-readable medium of claim 15,wherein the instructions, when executed by the processor, further causethe one or more computing devices to: generate, when the sum of thesigned notional values associated with the primary asset is non-zero, afirst remnant financial instrument and a second financial instrument toblend the plurality of financial instruments and minimize risk exposureto at least one of the first and second assets.
 18. The non-transitorycomputer-readable medium of claim 15, wherein the instructions, whenexecuted by the processor, further cause the one or more computingdevices to at least one of: determine a maximum conversion value ofconversion value associated with each of the plurality of financialinstruments; calculate an average conversion value of conversion valuesassociated with each of the plurality of financial instruments;determine a market rate corresponding to a currently quoted conversionvalue between the first asset and the second asset; and receive auser-entered conversion value.
 19. The non-transitory computer-readablemedium of claim 15, wherein the instructions, when executed by theprocessor, cause the one or more computing devices to: determine anotional value associated with the primary asset of the first and secondassets of the first remnant financial instrument, wherein the notionalvalue corresponds to a total risk exposure to the primary asset; andgenerate a second FX financial instrument as a single asset financialinstrument.
 20. A system comprising: a portfolio compression module of aclearinghouse computing system configured to reduce an amount of datarequired by a data repository of a financial institution computingsystem that stores a data structure corresponding to a portfolio of aplurality of financial instruments, each characterized by a notionalvalue and comprising an obligation to exchange a first asset for asecond asset at a later date as a function of an associated then currentconversion value between the first and second assets when the obligationwas entered into, the conversion value subsequently varying thereafter,the then current conversion value associated with one of the pluralityof financial instruments being different from the then currentconversion value associated with at least one other of the plurality offinancial instruments, the portfolio compression module is furtherconfigured to: access, via a network, the data repository of thefinancial institution computing system; determine, a first remnantfinancial instrument using a first conversion value and a first notionalvalue, wherein the first conversion value is one of a maximum of theassociated then current conversion values of the plurality of financialinstruments, an average of the associated then current conversion valuesof the plurality of financial instruments, a user selected conversionvalue, a multiple of a conversion value, a current conversion value, aprior conversion value or an adjustment thereto, the first notionalvalue being calculated using a weighted average notional value, a netnotional value multiplied by a second conversion value, and a differencebetween the first conversion value and the second conversion value;determine a second remnant financial instrument using the secondconversion value and a second notional value calculated as a differencebetween a total notional value of the portfolio and the first notionalvalue, wherein the second conversion value comprises a one of a minimumconversion value of the associated then current conversion values of theplurality of financial instruments, an average of the associated thencurrent conversion values of the plurality of financial instruments, auser selected conversion value, a current conversion value, a priorconversion value or an adjustment thereto; and generate a compresseddata structure comprising a first data element which stores the firstremnant financial instrument and a second data element which stores thesecond remnant financial instrument; and a front-end order entrycomputer system of the financial institution computing system configuredto replace, in the data repository of the financial institutioncomputing system, the first data structure with the compressed datastructure, wherein the compressed data structure is characterized by asmaller data size and a same net notional value but a reduced grossnotional value as compared with the first data structure.